Sales Compensation Solution Acquisition Best Practices Report

This guide suggests a better process for acquiring an ICM solution. For many companies, sales compensation is the largest component of Sales, General and Administrative (SG&A) costs. The monthly calculation and payment of variable sales compensation is often an arduous, manual process that must accommodate a number of exceptions and changes: rarely does a sales compensation plan start and end a fiscal year intact.

The plan must survive the attrition and addition of sales representatives. It must accurately calculate and pay commissions on time, as there are risks and trust issues involved when it doesn’t. While the sales compensation plan is, theoretically, an enabler of revenue growth, these characteristics prevent it from scaling as the business grows.

This guide will examine the problems that motivate ICM solution acquisition, the limitations of acquiring one through a traditional RFP, a recommended approach, an example project plan and conclude with a discussion of associated risks and rewards.

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5.
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This guide suggests a better process for acquiring an ICM
solution. For many companies, sales compensation is the largest
component of Sales, General and Administrative (SG&A) costs.
The monthly calculation and payment of variable sales
compensation is often an arduous, manual process that must
accommodate a number of exceptions and changes: rarely does a
sales compensation plan start and end a fiscal year intact.
The plan must survive the attrition and addition of sales
representatives. It must accurately calculate and pay commissions
on time, as there are risks and trust issues involved when it doesn’t.
While the sales compensation plan is, theoretically, an enabler of
revenue growth, these characteristics prevent it from scaling as the
business grows.
Given these challenges to managing and administering a sales
compensation process, the motivation to automate, streamline
and even reengineer it are high. However, the perceived risks of
introducing change to this often brittle or fragile process are high as
well. A number of vendors offer ICM solutions that are enjoying
increasing acceptance and adoption. Their potential value is
immense, if they are implemented using a consultative approach
where the vendor and customer partner to integrate best practices.
If, on the other hand, ICM solutions are implemented merely to
automate what may be a bad process, at best some efficiency gains
are realized, but the greater benefits are left on the table.
ICM solutions are often acquired through an unwieldy Request For
Proposal (RFP) process that too often focuses on solution features,
while ignoring sales compensation best practices. The purpose of
this guide is to help companies that seek to acquire ICM
solutions take an approach that doesn’t simply automate an
existing process, but reengineers it by introducing best
practices that deliver measureable ROI.
This guide will examine the problems that motivate ICM solution
acquisition, the limitations of acquiring one through a traditional
RFP, a recommended approach, an example project plan and
conclude with a discussion of associated risks and rewards.
If ICM solutions are implemented merely to
automate what may be a bad process, at best
some efficiency gains are realized, but the
greater benefits are left on the table.
Sales Compensation Solution Acquisition Best Practices Report

8.
For decades, companies have used an RFP to acquire systems and
solutions. RFPs are familiar mechanisms for acquiring accounting,
CRM and ERP solutions.
Why not ICM solutions as well?
The perception is that an RFP works well for more complex
solutions, particularly where there is some degree of risk.
There is a certain comfort level in producing a lengthy RFP, one
that has been thoroughly vetted to include questions about every
possible solution feature and capability.
The RFP approach may work well for acquiring many types of
solutions, but the “traditional” RFP falls short as a means for
acquiring ICM solutions. The reason is that such RFPs are typically
built on a flawed premise: the automation of an existing, sub-
optimal sales compensation process.
It is entirely possible for a “successful” RFP to result in ultimate
failure, because the solution it leads to acquiring doesn’t fix the
flaws of the sales compensation process, it merely automates them.
SOLUTION ACQUISITION PROCESS
8
This realization comes slowly, as there are almost always efficiencies
gained through automating any process, but if the core,
underlying process is unsound, the benefits are short-lived.
There are two critical success factors for ICM solution acquisition
that the purchase process must account for:
1. The Mathematical Model: Can an ICM solution accurately
calculate commissions, bonuses and incentive payments? While
this success factor is no trivial matter, the reality is that today’s
ICM solutions are very capable of performing the arithmetic.
By their own admission, they all are very good at calculating
variable sales compensation, even when those calculations are
rather intricate.
It is entirely possible for a “successful”
RFP to result in ultimate failure, because
the solution it leads to acquiring doesn’t
fix the flaws of the sales compensation
process, it merely automates them.
Sales Compensation Solution Acquisition Best Practices Report

14.
Does the solution do what I
need it to do?
Recommended ScopeTraditional RFP Scope
Does the solution do what I
need it to do?
Can the vendor provide
professional services,
implementation support and is it
financially viable?
Will the vendor co-develop the
business case, prove ROI, and
share best practices to create a
higher-value process?
Validate
Technology
Ability to
Drive ROI
Ability to
Execute
Validate
Technology
Figure 3: Traditional RFP Scope vs. Recommended RFP Scope
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Sales Compensation Solution Acquisition Best Practices Report

19.
The crucial difference between such a demo and a POC is
proof of ROI. A POC essentially runs in a production
environment, almost always in parallel to the existing sales
compensation process. Because a POC is a “mini” end-to-end
implementation, it touches on most if not all of the critical factors
for success, such as integration. The key differentiator between
custom demonstrations and POCs is shared risk: both the vendor
and customer collaborate in and commit resources to a successful
POC. The customer is a user in a POC.
In addition to the proof of ROI that a POC provides, the process
creates trust. The experience of working together during the POC
demonstrates to the buyer that the vendor has skills, knowledge and
expertise to effectively implement and support the solution. A
proper POC also answers key questions about usability. ICM
solutions typically aren’t used everyday, so when they are used, they
must be very simple. 19
A POC may seem like a major effort, but in reality it’s no more
work than the traditional RFP process, and it yields a better
outcome. The amount of time required to draft a traditional RFP,
(which on average contains 197 questions), distribute the RFP,
consider the responses, assess the top vendors and finalize an
acquisition is often 6-8 months.
At the end of this process, some uncertainty remains about how
well the chosen vendor will ultimately perform, and final
determination of vendor effectiveness must await implementation
and productive use. The recommended approach of an agile,
business case-oriented RFP and POC produces results as
quickly, ensures that the buyer and vendor have a stake in the
outcome and provides greater confidence in the acquisition.
The following section of this guide presents a sample project plan
for acquiring an ICM solution through a business case RFP and
POC.
The key differentiator between custom
demonstrations and POCs is shared risk: both
the vendor and customer collaborate in and
commit resources to a successful POC.
Sales Compensation Solution Acquisition Best Practices Report

20.
The ideal ICM acquisition process will typically include some or all of the processes, tools and resources described in this section. Major
projects that attempt to address critical flaws in the current sales compensation process should consider each of the potential plan elements
below. Minor projects that are addressing lower impact issues with sales compensation have the luxury of selecting those plan elements that best
serve the purpose:
 Project charter. Any serious initiative should start with the end in mind. Develop clarity about what the ideal outcome looks like, and then
get some level of management approval to pursue a solution. What’s needed at the beginning is not budget approval, but acknowledgement
of the need and authorization for the search. Communicate that the process will produce precise ROI estimates, which will later serve as the
financial justification for acquiring a solution.
 Vendor Identification. Identify the pool of candidate vendors for distribution of the business-case RFP.
 Draft the RFP. In conjunction with identification of candidate vendors, draft the business case RFP that contains question categories that
reveal how solutions create value and how well vendors can execute. Example questions might include:
 “What is an optimal compensation plan in my industry?”
 “How should I set quotas in my industry?”
 “How does this solution help identify whether my top earners are also my top performers?”.
Make sure the RFP does more than ask for a list of solution bells and whistles.
MODEL ICM ACQUISTION APPROACH
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Sales Compensation Solution Acquisition Best Practices Report

22.
ANALYST BOTTOM LINE
As stated in the introduction of this guide, sales
compensation is for many companies the largest SG&A
expense. As long as sales compensation is managed through a
manual process, it will remain an expense, with accuracy,
consistency and efficacy an elusive goal. Even when manual
processes for getting commission checks calculated and & paid
work smoothly, they only provide a view of what happened in the
past.
Since the sales compensation plan is in reality the gate key to
most of a company’s revenue, it should be viewed as an
investment, managed to achieve the highest possible ROI.
This can only occur through reengineering the compensation
process with automation tools that help users implement best
practices. Tools that merely automate existing, manual processes are
little more than expensive commissions calculators.
The cost of getting sales compensation wrong – delayed financial
reporting, restated earnings, legal liability or just plan/objectives
misalignment – is too high. While there is perceived risk in the
acquisition of an ICM solution for companies using a manual
Tools that merely automate existing,
manual processes are little more than
expensive commissions calculators.
process, there is greater risk in maintaining the status quo. Both
types of risk are mitigated through the acquisition process
recommended in this guide. At the heart of this recommended
process is the POC, and it’s essential because only a POC
provides an accurate assessment of true performance and
ROI.
The first imperative this guide encourages is to replace
manual sales compensation administration processes with
best practices driven automation. Companies are ideally strategic
enough in their thinking to recognize the value of doing this,
without having a negative triggering catalyst, such as a restatement
of earnings. The second imperative is to then pursue the
acquisition of a solution using the process this guide recommends.
Doing so will ensure the right solution is implemented the first time
because it exactly solves the problems it needs to.
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Sales Compensation Solution Acquisition Best Practices Report